Fannie Mae 2005 Annual Report Download - page 26

Charter Act
The Charter Act, as it was further amended from 1970 through 1998, sets forth the activities that we are
permitted to conduct, authorizes us to issue debt and equity securities, and describes our general corporate
powers. The Charter Act states that our purpose is to:
• provide stability in the secondary market for residential mortgages;
• respond appropriately to the private capital market;
• provide ongoing assistance to the secondary market for residential mortgages (including activities relating
to mortgages on housing for low- and moderate-income families involving a reasonable economic return
that may be less than the return earned on other activities) by increasing the liquidity of mortgage
investments and improving the distribution of investment capital available for residential mortgage
financing; and
• promote access to mortgage credit throughout the nation (including central cities, rural areas and
underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of
investment capital available for residential mortgage financing.
In addition to our overall strategy being aligned with these purposes, all of our business activities must be
permissible under the Charter Act. Our charter specifically authorizes us to “purchase, service, sell, lend on
the security of, or otherwise deal in” conventional mortgage loans. Our purchase of these mortgage loans is
subject to limitations on the maximum original principal balance for single-family loans and requirements for
credit enhancement for some loans. Under our Charter Act authority, we can purchase mortgage loans secured
by first or subordinate liens, issue debt and issue mortgage-backed securities. In addition, we can guarantee
mortgage-backed securities. We can also act as a depository, custodian or fiscal agent for our “own account or
as fiduciary, and for the account of others.” Furthermore, the Charter Act expressly enables us to “lease,
purchase, or acquire any property, real, personal, or mixed, or any interest therein, to hold, rent, maintain,
modernize, renovate, improve, use, and operate such property, and to sell, for cash or credit, lease, or
otherwise dispose of the same” as we may deem necessary or appropriate and also “to do all things as are
necessary or incidental to the proper management of [our] affairs and the proper conduct of [our] business.”
Loan Standards
The single-family conventional mortgage loans we purchase or securitize must meet the following standards
required by the Charter Act.
•Principal Balance Limitations. Our charter permits us to purchase and securitize single-family conven-
tional mortgage loans subject to maximum original principal balance limits. Conventional mortgage loans
are loans that are not federally insured or guaranteed. The principal balance limits are often referred to as
“conforming loan limits” and are established each year by OFHEO based on the national average price of
a one-family residence. For 2005, the conforming loan limit for a one-family residence was $359,650, and
for 2006 and 2007 it is $417,000. Higher original principal balance limits apply to mortgage loans secured
by two- to four-family residences and also to loans in Alaska, Hawaii, Guam and the Virgin Islands. No
statutory limits apply to the maximum original principal balance of multifamily mortgage loans (loans
secured by properties that have five or more residential dwelling units) that we purchase or securitize. In
addition, the Charter Act imposes no maximum original principal balance limits on loans we purchase or
securitize that are insured by the FHA or guaranteed by the VA.
•Quality Standards. The Charter Act requires that, so far as practicable and in our judgment, the
mortgage loans we purchase or securitize must be of a quality, type and class that generally meet the
purchase standards of private institutional mortgage investors. To comply with this requirement and for
the efficient operation of our business, we have eligibility policies and make available guidelines for the
mortgage loans we purchase or securitize as well as for the sellers and servicers of these loans.
•Loan-to-Value and Credit Enhancement Requirements. The Charter Act requires credit enhancement on
any conventional single-family mortgage loan that we purchase or securitize if it has a loan-to-value ratio
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